Mortgage Payments Cost More

For many home buyers, finding your home is only the first step in the process. This process alone can be a struggle for many Americans. However, the next biggest struggle is that of the mortgage payments. Over just the course of the year, this is becoming an increasingly harder challenge. The average monthly payment towards mortgages for Americans has reached the highest level ever on record. Monthly payments now exceed $1,230 per month, on a 30-year, fixed mortgage loan. This is up over 30% from the year prior. A 36% increase in mortgage payments in just a year comes from higher home prices coupled with higher mortgage rates. Here is why mortgage payments cost more than 1 year ago.

Mortgage Rates Year Over Year

With mortgage payments up 36% in a year, and even 6% higher than January, buyers are in for a tough ride. Mortgage rates in the U.S. have risen and been volatile in the recent months due to the Federal Reserve and geopolitical issues. While they have risen by close to a point, rates have ticked down recently based on a European crisis. However, with expectations of the Federal Reserve beginning to reserve rates in March, it will further squeeze buyers in the market. With inflation ravaging the world economy, it is impacting real estate prices and will impact rates as a way to fix the inflation crisis. This is being described as a “one-two punch.”

 

Over the course of 12 months, home prices in most major markets in the U.S. increased by 20%. The average price now is $326,000, up from $272,000 a year ago. With mortgage rates only increasing slightly in 2021, demand for real estate remained historically high. Couple that with the increase in prices, monthly mortgage payments increased at an exacerbated rate. The “one-two punch” has really came into fruition in the beginning of 2022, as home prices have increased already, and rates have increased by almost a percent.

Yearly Mortgage Rates Cost More

The yearly increase reached as high as 60% in some markets. The lowest seen in markets was around 20%. This is an astronomical increase in the cost of living in just one year. Couple increasing housing costs with the overall rise in the cost of goods and services, and buyers are in for a rough ride. There is a reason that real estate is an inflation hedge, however, If you would have bought last year, you would be saving yourself a total of 36% of your income towards your mortgage payment.

Mortgage Rates And Demand

There is evidence that mortgage rates have finally started to impact demand. Not only is demand being impacted, but buyer sentiment is at an all-time low. Buyers have voted that there has never been a worse time to buy. On the flip side, sellers have never saw a better time to sell according to their polls. A gauge of new U.S. home-loan applications fell to the lowest level since 2019. This is pre-pandemic levels, where real estate was still hot but not historically hot. Sales of new builds for single-family homes have declined for the last three months as building has slowed. A drop in demand and new builds could hopefully add some relief for buyers in the future. However, many experts are predicting that any increase in inventory will be bought up quickly. Zillow Economist Jeff Tucker said:

“With so few homes on the market, sellers still may expect multiple offers on their listings, even if a substantial share of buyers press ‘pause’ on their home search for now.”

Source: Bloomberg